AUD/USD holds steady near two-week high, above mid-0.7100s amid risk-on/softer USD

• A combination of factors assisted AUD/USD to gain traction for the third successive day.
• The risk-on impulse benefitted the perceived riskier aussie amid modest USD weakness.
• The upside potential seems limited as investors await the key US CPI report on Thursday.

The AUD/USD pair maintained its bid tone through the first half of the European session and was last seen trading near a two-week high, around the 0.7165-0.7170 region.

The pair built on its positive move witnessed since the beginning of this week and gained follow-through traction for the third successive day on Wednesday. The risk-on impulse in the markets benefitted the perceived riskier aussie and remained supportive amid modest US dollar weakness.

A softer tone surrounding the US Treasury bond yields weighed on the USD. That said, rising bets for a 50 bps Fed rate hike in March should limit the downside for the US bond yields and the buck. This, in turn, warrants some caution before placing aggressive bullish bets around the AUD/USD pair.

Investors seem convinced that the Fed would adopt a more aggressive policy response to contain high inflation. Hence, the focus will remain on the US CPI report, due on Thursday, which will influence the near-term USD price dynamics and provide a fresh directional impetus to the AUD/USD pair.

In the meantime, the US bond yields would continue to play a key role in driving the USD demand amid absent relevant market moving economic releases. Apart from this, traders will take cues from the broader market risk sentiment to grab some short-term opportunities around the AUD/USD pair.

Technical levels to watch